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Country Report

Mauritius

Generated on December 31st 2018

Economist Intelligence Unit
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London E14 4QW
United Kingdom

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Mauritius 1

Mauritius
Summary
2 Briefing sheet

Outlook for 2019-23

4 Political stability
4 Election watch
5 International relations
5 Policy trends
6 Fiscal policy
6 Monetary policy
7 International assumptions
7 Economic growth
8 Inflation
8 Exchange rates
9 External sector
9 Forecast summary

Data and charts

10 Annual data and forecast
11 Quarterly data
12 Monthly data
13 Annual trends charts
14 Monthly trends charts
15 Comparative economic indicators

Summary
15 Basic data
17 Political structure

Recent analysis
Politics
20 Forecast updates

Economy
21 Forecast updates
24 Analysis

Country Report 4th Quarter 2018 www.eiu.com © Economist Intelligence Unit Limited 2018

Mauritius 2

Briefing sheet
Editor: Sreya Ram
Forecast Closing Date: October 19, 2018

Political and economic outlook

Political stability will be supported by relatively strong democratic institutions in 2019-23,
although tensions between the opposition and the ruling coalition, Alliance Lepep, will
increase in the run-up to the next general election in December 2019.
The Economist Intelligence Unit expects the government to make some progress on
implementing pro-business measures but to remain slow at improving competitiveness owing to
its interventionist tendencies.
We expect the fiscal deficit to widen from 4.1% of GDP in fiscal year 2018/19 (July-June) to 4.3%
of GDP in 2019/20 because of weakening economic activity and an expansionary fiscal policy. It
will then narrow in 2020/21-2022/23 as revenue growth picks up.
We forecast that real GDP growth will slow in 2019-20, averaging 3.2% a year, mainly driven by
a slowdown in economic growth in the US and Europe, before picking up gradually to 4.4% in
2023 as the external environment strengthens.
Inflationary pressures will increase in 2019, mainly driven by a lower policy interest rate and a
rise in global oil prices in 2019. Inflation will drop in 2020 as global oil prices dip, before rising
again in 2021-23 as oil prices increase and domestic demand picks up.
The current-account deficit will widen to 9.9% of GDP in 2020 (from an estimated 7.1% of GDP
in 2018), before gradually narrowing to 7.1% of GDP in 2023. These trends are mainly driven by
the economic performance of Mauritius's main trading partners.
Key indicators
2018a 2019b 2020b 2021b 2022b 2023b
Real GDP growth (%) 3.8 3.6 2.8 3.8 4.1 4.4
Consumer price inflation (av; %) 3.9 4.6 2.4 3.2 3.7 3.8
Government balance (% of GDP) -3.3 -4.1 -4.3 -4.1 -3.8 -3.4
Current-account balance (% of GDP) -7.1 -7.4 -9.9 -8.8 -7.9 -7.1
Money market rate (av; %) 1.8 1.9 2.1 2.0 2.3 3.3
Unemployment rate (%) 7.0 7.0 6.9 6.8 6.8 6.7
Exchange rate MRs:US$ (av) 33.89 34.50 34.10 34.01 32.12 32.12
a Economist Intelligence Unit estimates. b Economist Intelligence Unit forecasts.

Country Report 4th Quarter 2018 www.eiu.com © Economist Intelligence Unit Limited 2018

Mauritius 3

Key changes since July 20th

Owing to a tighter global oil market and a more pessimistic outlook for Iranian oil production
and exports, we have revised up our global oil price forecast to US$76.8/barrel in 2019 and
US$70.8/b in 2020.
In light of lower than previously expected inflation in the first nine months of 2018, we have
revised down our inflation estimate for that year.
We have revised up our inflation forecast from an average of 4.2% in 2019 and 2.1% in 2020 to
4.6% in 2019 and 2.4% in 2020 to reflect the upward revision to our global oil price projections.

The quarter ahead

November—Meeting of the Bank of Mauritius's monetary policy committee (MPC): As
inflation has moderated in recent months, the MPC might leave its key repo rate unchanged in
November. But a pick-up in the pace of the US central bank's interest-rate rises will put pressure
on the MPC to review its current policy rate in the medium term.

Major risks to our forecast

Scenarios, Q3 2018 Probability Impact Intensity
Weak energy infrastructure with frequent power cuts affects business
High High 16
operations
Firms have difficulty finding skilled workers High Moderate 12
Investment inflows stagnate High Moderate 12
A slowdown in economic activity affects the banking sector Moderate High 12
The Paradise Papers scandal leads to reforms that drastically damage the
Moderate High 12
offshore sector
Note: Scenarios and scores are taken from our Risk Briefing product. Risk scenarios are potential
developments that might substantially change the business operating environment over the coming two
years. Risk intensity is a product of probability and impact, on a 25-point scale.
Source: The Economist Intelligence Unit.

Country Report 4th Quarter 2018 www.eiu.com © Economist Intelligence Unit Limited 2018

Mauritius 4

Outlook for 2019-23

Political stability
Political stability will continue to be supported by the country's relatively strong democratic
institutions, as well as by regular elections and respect for political freedoms. The Economist
Intelligence Unit expects the two­party ruling coalition—Alliance Lepep—to remain in power until
the next general election, which is due in 2019. However, frictions within the coalition persist, as it
was formed out of political necessity rather than because its constituent parties had close
ideological or personal ties.
The ruling coalition's image has taken a hit following the resignation of the president, Ameenah
Gurib-Fakim, of Alliance Lepep, in March 2018. Ms Gurib-Fakim resigned after being accused of
using a credit card of an international non-governmental organisation, the Planet Earth Institute,
for personal expenses. The government has set up a commission to investigate the scandal. The
already modest popularity of Alliance Lepep among voters is in any case likely to decline as the
election approaches, given relatively sluggish economic growth and an increasing popular
perception of cronyism and corruption within government. We expect an opposition coalition to
take power after the next election. That said, any new coalition will face similar difficulties given
the fluid and confrontational political scene in the country.
In October the prime minister, Pravind Jugnauth, announced a new electoral reform bill that
increases the number of parliamentary seats from 70 to 81—63 MPs under a first­past­the­post
system, 12 seats (up from eight) under proportional representation (PR) and six Best Loser Seats
(with the leaders of the eligible parties choosing the people who will take up the six seats).
Alliance Lepep has only 55% of the seats in parliament and is unlikely to secure the three-quarters
majority necessary to pass the bill. Nevertheless, tensions around electoral reform have
heightened political bickering in the past, and this is likely to be repeated in the upcoming months
as the parties iron out their differences on the details of the reform bill and engage in some
political point-scoring.

Election watch
The next general election is due in December 2019. We expect Alliance Lepep's popularity to
decline in the run-up to the election because of internal tensions within the coalition, increased
popular perceptions of corruption and slow economic growth. This will give opposition parties an
opportunity to take advantage of growing anti­government sentiment—as Alliance Lepep did at
the previous election.
The political landscape is fragmented and fluid—currently seven parties are represented in the
legislature. But we expect a new opposition coalition to emerge in the run-up to the next election.
Although there is no clear alliance yet, a broad enough anti-Alliance Lepep coalition has a good
chance of winning the next election.

Country Report 4th Quarter 2018 www.eiu.com © Economist Intelligence Unit Limited 2018

Mauritius 5

International relations
Mauritius's foreign policy will continue to focus on securing favourable access to developed
markets for the country's exports, encouraging foreign investment and cultivating strong
relationships with key economic partners. Mauritius is now part of a new pan-African trade pact,
the Tripartite Free-Trade Area, which will provide the country with an opportunity to bolster
relations with member countries. Mauritius's ambition to establish itself as a regional business
centre has been put at risk by the revision of one of its major double taxation avoidance
agreements (DTAAs), with India. The agreement will be phased out in 2019. Ties with India will,
however, remain close. India has extended several lines of credit to Mauritius—to support the
development of its infrastructure, including a light railway project—and has remained among the
largest exporters of goods and services to Mauritius over the past decade. The government will
increase its efforts to negotiate other investor-protection agreements and favourable DTAAs with
emerging markets. Yet progress is likely to be slow given waning support for globalisation in
many parts of the world.
Bilateral relations with China will remain strong; we expect China to continue to provide financial
and technical assistance to Mauritius. Meanwhile, relations with the UK will continue to be
overshadowed by a long-standing dispute over sovereignty of the Chagos Islands. In mid-2017
the case was referred to the International Court of Justice, which began hearing arguments in
September 2018; a verdict is yet to be announced. Although Mauritian politicians will continue to
denounce British policy on this issue, economic and cultural relations between the two countries
will remain close as they seek to safeguard their commercial relations.

Policy trends
Mauritius remains among the most business-friendly countries in Sub-Saharan Africa, and the
government has increased its efforts to implement more pro-business initiatives and attract
investment in key export sectors. The government aims to invest in education and training, create
more job opportunities and reduce income inequality. Nonetheless, the authorities' penchant for
interventionist and populist measures—such as welfare payments, salary top­ups for low­paid
workers and a minimum wage, introduced in January 2018—will continue to have repercussions in
terms of cost competitiveness and inflation.
To increase the country's resilience to shocks, the government will continue its efforts to diversify
the "four pillar" economy based on sugar, textiles, tourism and financial services. However, high
current spending pressures and inefficient spending processes will hinder execution of the
diversification plan. In addition, the need to meet the debt target—central government debt is
required by law to fall below 60% of GDP by fiscal year 2020/21 (July­June)—will reduce the
amount of funding available for investment in diversification. We forecast that the public debt
stock (including that owed by state-owned companies) will decline as the forecast period
progresses, to 54.6% of GDP at end-2023.

Country Report 4th Quarter 2018 www.eiu.com © Economist Intelligence Unit Limited 2018

Mauritius 6

Fiscal policy
The government will maintain a relatively expansionary fiscal stance and a long-held populist bent
over the forecast period. Total spending is budgeted to increase by 9.5% year on year in 2018/19,
with social benefits and direct subsidies constituting a major proportion of recurrent expenditure.
The plans also include investment in infrastructure development (including a metro express rail
project and expanding other industrial infrastructure and logistic facilities). However, we do not
expect the government to be able to execute its 2018/19 spending plans fully. We expect high
current spending pressures and an ambitious public investment programme to keep expenditure
high throughout the forecast period.
The government's revenue projections for 2018/19 are based on overoptimistic growth projections
(the government's real GDP growth targets of 3.9% in 2018 and 4.1% in 2019 are likely to be
missed; we expect economic growth to slow to 3.6% in 2019) and were drawn up against a
backdrop of an uncertain external environment (particularly in the post­Brexit UK—a key
investment and trading partner for Mauritius). The government has introduced several tax
incentives, such as five-year tax holidays, increased income tax thresholds and a reduction in the
number of tax brackets, which limits the scope to raise income from direct taxes. We expect
revenue growth to be slower than forecast by the government until 2019/20 as domestic economic
growth remains sluggish and authorities hold off on unpopular tax reforms ahead of the general
election. We then expect revenue growth, in line with quicker domestic economic growth, to pick
up towards the end of the forecast period.
Overall, given the uncertain revenue picture, high current spending pressures and an ambitious
public investment programme, we expect a widening of the fiscal deficit from 4.1% of GDP in
2018/19 to 4.3% of GDP in 2019/20. We then forecast a narrowing of the deficit to 3.4% of GDP in
2022/23 as the government intensifies efforts to boost revenue collection.

Monetary policy
The Bank of Mauritius (the central bank) prioritises boosting economic activity. It left its key repo
rate unchanged in August, having last lowered it in September 2017, from 4% to a historical low of
3.5%. However, we expect the Federal Reserve (Fed, the US central bank) to accelerate the pace of
its interest-rate increases in 2019 to combat expectations of faster inflation in the US; higher
returns there could attract capital outflows from Mauritius—a small, open economy. We therefore
expect a tightening of monetary policy before end-2019. An increase in the policy rate is likely to
be relatively small, though, given the country's sluggish economic growth prospects. A modest
recovery in the US thereafter should allow for one rate rise a year in the US in 2021-22, followed by
two increases in 2023 (with rates in 2023 being even higher than in 2019). Despite a moderation of
inflationary pressures in Mauritius, we expect one rate increase a year in 2021-23, broadly in line
with the Fed rate hikes. There are downside risks to this scenario stemming from both local
factors, such as a potential deterioration of domestic economic conditions, and external factors,
given the vulnerability of Mauritius to global market volatility, which could lead to another cut in
interest rates.

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Mauritius 7

International assumptions
2018 2019 2020 2021 2022 2023
Economic growth (%)
US GDP 2.9 2.2 1.3 1.7 2.0 1.9
OECD GDP 2.3 2.0 1.5 1.9 2.0 1.9
World GDP 3.0 2.7 2.5 2.7 2.8 2.7
World trade 4.0 3.7 3.0 4.0 3.7 3.9
Inflation indicators (% unless otherwise indicated)
US CPI 2.6 2.4 1.6 1.8 1.7 1.8
OECD CPI 2.5 2.5 2.0 2.0 2.0 2.0
Manufactures (measured in US$) 6.3 3.6 3.0 2.4 3.6 2.9
Oil (Brent; US$/b) 75.2 76.8 70.8 74.8 77.4 76.1
Non-oil commodities (measured in US$) 2.4 -0.1 2.6 1.6 1.3 0.9
Financial variables
US$ 3-month commercial paper rate (av; %) 2.1 2.9 2.5 2.6 2.9 3.2
US$:€ (av) 1.18 1.19 1.21 1.21 1.24 1.24
¥:US$ (av) 110.15 110.91 108.64 104.88 100.46 96.08

Economic growth
As a small, open economy, Mauritius will be affected by global economic trends, especially
conditions in Europe, the US and China. Despite diversification efforts, Europe still accounts for
around half of Mauritius's exports and tourist arrivals, and is a major source of investment.
Mauritius's real GDP growth will slow in 2019-20 owing to a deceleration in the growth momentum
of Mauritius's key trading partners—Europe, the US and China—in those years, which will lead to
a fall in exports. Moreover, in line with our expectation of monetary tightening towards the end of
2019, we expect a slowdown in private consumption growth in 2020, which will act as another drag
on the pace of growth, although it will be partly offset by sustained government consumption.
(Private consumption accounts for around 65% of GDP.) A slowdown in US economic growth in
2020 will also moderate the pace of growth in manufacturing (and particularly the textile sector).
This will be only partly offset by a strong performance of the construction sector, driven by
public investment in infrastructure, and tourism sector growth, which will be boosted by an
increase in arrivals from emerging markets.
Following these trends, we expect real GDP growth to fall from an estimated 3.8% in 2018 to 3.6%
in 2019 and 2.8% in 2020. In 2021-23 export growth will pick up owing to an economic recovery in
Mauritius's key trading partners and efforts to develop and expand port infrastructure. In addition,
higher public investment will support economic activity. Following these developments,
we expect real GDP growth to average 4.1% a year in 2021-23. However, Mauritius's vulnerability
to external factors, such as renewed weakness in the euro zone and instability in emerging
markets, poses a significant downside risk to our forecast.
Economic growth
% 2018a 2019b 2020b 2021b 2022b 2023b
GDP 3.8 3.6 2.8 3.8 4.1 4.4
Private consumption 3.3 3.0 2.2 2.5 3.0 3.1
Government consumption 3.1 2.7 3.2 3.2 2.5 2.5
Gross fixed investment 4.7 4.7 3.8 4.0 5.0 5.5
Exports of goods & services 2.0 2.2 2.5 5.1 5.4 6.1
Imports of goods & services 1.8 1.6 2.5 3.2 3.6 4.0
Domestic demand 3.5 3.2 2.8 3.0 3.3 3.5
Agriculture 3.4 3.0 3.0 2.0 2.0 2.2
Industry 3.0 3.0 2.0 4.4 3.8 4.4
Services 3.6 3.4 3.0 3.4 4.0 4.4
a Economist Intelligence Unit estimates. b Economist Intelligence Unit forecasts.

Country Report 4th Quarter 2018 www.eiu.com © Economist Intelligence Unit Limited 2018

Mauritius 8

Inflation
The country will remain heavily dependent on imports of food and fuel, which have a heavy
weighting in the consumer price index. As a result, exchange-rate movements and global
commodity prices have a significant influence on domestic inflation, although price controls on
some basic foods and the country's petrol price stabilisation fund limit their impact. Wage growth
tends to outpace inflation and productivity gains in Mauritius, which will maintain upward price
pressure throughout the forecast period. In 2018 rising incomes (on the back of the introduction
of a minimum wage) and an expansionary fiscal policy will put upward pressure on inflation.
However, falling food prices and appreciation of the Mauritius rupee against the US dollar will
prevent inflationary pressures from accelerating significantly. We estimate average inflation at
3.9% in 2018. In 2019 we expect inflationary pressures to increase on the back of rising global oil
prices, depreciation of the rupee and pre-election expansionary fiscal policy. Inflation will average
4.6% in 2019. In 2020 we forecast that inflation will drop to 2.4% amid weaker domestic demand, a
dip in world oil prices and a slightly stronger currency. Over the remainder of the forecast period
we expect inflation to rise to an annual average of 3.6%, driven by higher global commodity prices
(barring a slight dip in oil prices in 2023), accompanied by rising domestic demand.

Exchange rates
The rupee has a past record of tracking the value of the euro against the US dollar. We expect the
euro to strengthen against the US dollar in 2019-20, on the assumption that the region's recovery
will continue while growth momentum in the US slows, as a result of its escalating trade dispute
with China, and the Fed embarks on a policy easing cycle in 2020. A tepid recovery in the US and
moves by the European Central Bank to unwind its accommodative monetary policy will then keep
the euro-dollar exchange rate broadly stable in 2021. In 2022 the euro will appreciate on average
again as macroeconomic fundamentals in the euro zone improve more strongly than those in the
US before remaining broadly unchanged in 2023. Tracking these dynamics, we expect the average
value of the rupee to weaken from an estimated MRs33.9:US$1 in 2018 to MRs34.50:US$1 in 2019
and then to appreciate to an average MRs33.1:US$1 in 2020-23.

Country Report 4th Quarter 2018 www.eiu.com © Economist Intelligence Unit Limited 2018

Mauritius 9

External sector
Growth in export earnings will remain sluggish in 2019 mainly because of falling sugar output, and
thus exports, owing to increased competition from international markets, especially the EU,
following an EU policy reform that increased sugar production quotas for the bloc and depressed
international sugar prices. Export earnings will then decline in 2020 as the US economy slows
before picking up in 2021-23 as global economic activity increases. Imports of capital goods (as
part of the government's investment programme) will remain high in 2019-20 and will pick-up more
strongly in 2021-23 as robust economic activity pushes up domestic demand. In addition, higher
oil prices (despite a dip in 2020 and 2023) will push up the import bill in 2019-23. Overall, the
merchandise trade deficit will remain large in 2019-20, averaging 19.6% of GDP a year. From 2021
export growth will outpace import growth and the trade deficit will narrow to an annual average of
17% of GDP in 2021-23.
The services surplus as a proportion of GDP will fall from an estimated 5.8% of GDP in 2018 to an
annual average of 5.2% in 2019-20 in line with weaker global economic growth, which will affect
exports of financial, insurance and communication services. The services surplus as a proportion
of GDP will rise in 2021-23 to an annual average of 5.4% as world economic growth accelerates and
supports export earnings from tourism and financial and communications services. Following the
revision to the DTAA with India, we expect slower growth in primary income inflows—which
mostly reflects income from offshore companies' overseas investments—and a consequent
gradual fall in the primary income surplus as a percentage of GDP. The small secondary income
deficit will narrow marginally as a proportion of GDP, as remittances from Mauritians in Europe are
partly offset by those from foreign workers in Mauritius, from an estimated 1.9% in 2018 to 1.6%
in 2023.
Overall, the current-account deficit will widen from an estimated 7.1% of GDP in 2018 to 9.9% of
GDP in 2020. It will then gradually narrow to 7.1% of GDP in 2023, reflecting the developments on
the trade balance. The deficits will be financed mainly by private-sector borrowing and foreign
investment inflows into the services sector.

Forecast summary
Forecast summary
(% unless otherwise indicated)
2018a 2019b 2020b 2021b 2022b 2023b
Real GDP growth 3.8 3.6 2.8 3.8 4.1 4.4
Gross agricultural production growth 3.4 3.0 3.0 2.0 2.0 2.2
Unemployment rate (av) 7.0 7.0 6.9 6.8 6.8 6.7
Consumer price inflation (av) 3.9 4.6 2.4 3.2 3.7 3.8
Short-term interbank rate 8.5 8.5 8.5 9.0 9.0 10.0
Government balance (% of GDP) -3.3 -4.1 -4.3 -4.1 -3.8 -3.4
Exports of goods fob (US$ m) 2,425 2,418 2,182 2,320 2,616 2,750
Imports of goods fob (US$ m) -5,135 -5,237 -5,345 -5,451 -5,887 -5,941
Current-account balance (US$ m) -988 -1,091 -1,560 -1,475 -1,527 -1,485
Current-account balance (% of GDP) -7.1 -7.4 -9.9 -8.8 -7.9 -7.1
External debt (year-end; US$ bn) 20.8 22.3 24.0 24.3 25.3 25.2
Exchange rate MRs:US$ (av) 33.89 34.50 34.10 34.01 32.12 32.12
Exchange rate MRs:US$ (end-period) 34.20 34.57 33.89 33.75 29.67 33.01
Exchange rate MRs:¥100 (av) 30.77 31.10 31.39 32.43 31.97 33.43
Exchange rate MRs:€ (end­period) 39.50 42.00 40.67 41.35 36.94 41.09
a Economist Intelligence Unit estimates. b Economist Intelligence Unit forecasts.

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Mauritius 10

Data and charts

Annual data and forecast
2014a 2015a 2016a 2017a 2018b 2019c 2020c
GDP
Nominal GDP (US$ m) 12,803 11,692 12,232 13,266 13,865 14,776 15,710
Nominal GDP (MRs m) 392,062 409,892 434,765 457,445 469,918 509,718 535,744
Real GDP growth (%) 3.7 3.6 3.8 3.8 3.8 3.6 2.8
Expenditure on GDP (% real change)
Private consumption 2.6 2.9 3.0 3.0 3.3 3.0 2.2
Government consumption 4.6 3.1 2.9 1.6 3.1 2.7 3.2
Gross fixed investment -6.0 -5.4 3.7 4.6 4.7 4.7 3.8
Exports of goods & services 10.9 -0.7 -4.6 -2.0 2.0 2.2 2.5
Imports of goods & services 8.5 6.2 -0.1 2.1 1.8 1.6 2.5
Origin of GDP (% real change)
Agriculture 3.9 -1.0 3.7 3.5b 3.4 3.0 3.0
Industry 0.0 -0.5 3.2b 3.2b 3.0 3.0 2.0
Services 4.7 4.6 3.8b 3.8b 3.6 3.4 3.0
Population and income
Population (m) 1.26 1.26 1.26 1.26 1.26 1.27 1.27
GDP per head (US$ at PPP) 19,231 20,088 21,072 22,283 23,412 24,686 25,979
Recorded unemployment (av; %) 7.8 7.9 7.3 7.1 7.0 7.0 6.9
Fiscal indicators (% of GDP)d
Central government budget revenue 20.3 20.5 20.9 21.2 23.0 23.0 23.0
Central government budget expenditure 23.5 24.2 24.4 24.8 26.4 27.1 27.3
Central government budget balance -3.2 -3.7 -3.5 -3.6 -3.3 -4.1 -4.3
Net public debt 60.6 62.7 65.0 65.0 64.7 63.3 61.4
Prices and financial indicators
Exchange rate MRs:US$ (end-period) 31.73 35.89 36.01 33.48 34.20 34.57 33.89
Exchange rate MRs:€ (end­period) 38.52 39.07 37.96 40.16 39.50 42.00 40.67
Consumer prices (end-period; %) 0.2 1.3 2.3 4.2 4.4 5.8 0.1
Stock of money M1 (% change) 8.5 9.4 11.6 8.9b 3.5 9.0 6.2
Stock of money M2 (% change) 8.7 10.2 9.1 9.4b 6.8 9.6 7.2
Current account (US$ m)
Trade balance -2,259 -1,862 -2,029 -2,628 -2,710 -2,819 -3,163
Goods: exports fob 3,095 2,662 2,377 2,362 2,425 2,418 2,182
Goods: imports fob -5,354 -4,524 -4,406 -4,990 -5,135 -5,237 -5,345
Services balance 693 602 800 773 803 780 779
Primary income balance 1,064 899 949 1,228 1,188 1,220 1,106
Secondary income balance -210 -225 -232 -258 -269 -271 -282
Current-account balance -712 -586 -512 -885 -988 -1,091 -1,560
External debt (US$ m)
Debt stock 15,202 14,643 17,952 19,695b 20,781 22,315 23,984
Debt service paid 3,506 3,401 2,106 2,881b 3,004 3,254 3,315
Principal repayments 3,164 3,108 1,717 2,447b 2,545 2,753 2,771
Interest 342 293 389 434b 459 501 545
Debt service due 3,508 3,402 2,107 2,881b 3,004 3,254 3,315
International reserves (US$ m)
Total international reserves 3,919 4,260 4,967 5,984 5,403 5,666 5,812
a Actual. b Economist Intelligence Unit estimates. c Economist Intelligence Unit forecasts. d The fiscal year
was the calendar year until 2015; from 2015 the fiscal year ends on June 30th.
Sources: IMF, International Financial Statistics; Bank of Mauritius; Central Statistics Office; Ministry of Finance and
Economic Development; World Bank; The Economist Intelligence Unit.

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Mauritius 11

Quarterly data
2016 2017 2018
3
4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr
Qtr
Output
Industrial production (2007=100) 115.0 90.4 102.7 105.7 117.5 91.8 103.8 n/a
Industrial production (% change, year on year) 1.5 0.6 2.5 1.8 2.2 1.5 1.1 n/a
Prices
Consumer prices (2012=100) 96.4 98.3 101.0 100.7 100.1 104.8 103.4102.2
Consumer prices (% change, year on year) 2.0 1.4 5.1 4.5 3.8 6.6 2.4 1.5
Financial indicators
Exchange rate MRs:US$ (av) 35.8 35.6 34.9 33.5 33.9 32.9 34.2 34.3
Exchange rate MRs:US$ (end-period) 36.0 35.3 34.5 33.8 33.5 33.2 34.6 34.2
Deposit rate (av; %) 4.8 3.3 3.1 3.4 2.4 2.8 3.3 n/a
Lending rate (av; %) 8.5 8.5 8.5 8.5 8.5 8.5 8.5 n/a
3-month money market rate (av; %) 1.4 1.1 0.9 0.8 0.9 2.1 3.4 n/a
M1 (end-period; MRs m) 102,001101,825102,471 n/a n/a n/a n/a n/a
M1 (% change, year on year) 11.6 12.2 8.8 n/a n/a n/a n/a n/a
M2 (end-period; MRs m) 477,789485,071 n/a n/a n/a n/a n/a n/a
M2 (% change, year on year) 9.1 9.6 n/a n/a n/a n/a n/a n/a
Semdex stockmarket index (end-period; July 31st
1,808 1,933 2,123 2,230 2,202 2,288 2,2452,251
1989=100)
Sectoral trends
Sugar exports (‘000 tonnes) 111 123 118 119 80 70 69 n/a
Tourist arrivals (’000) 394 340 286 309 407 356 290 328
Tourism receipts (MRs m) n/a 16,086 13,233 n/a n/a18,48314,976 n/a
Foreign trade (MRs m)
Exports fob 21,104 19,687 20,34821,11120,17118,10020,238 n/a
Export-orientated enterprises 11,198 9,397 11,14911,69710,902 9,85311,354 n/a
- - - -
Imports cif -43,632 -39,188 -42,058 n/a
41,134 49,398 37,366 45,786
Export-orientated enterprises 6,127 5,779 6,933 6,951 7,517 5,911 6,867 n/a
- - - -
Trade balance -22,528 -19,501 -21,710 n/a
20,023 29,227 19,266 25,548
Foreign payments (US$ m)
Merchandise trade balance -635 -548 -622 -598 -862 -586 -747 n/a
Services balance 278 203 168 133 270 317 214 n/a
Primary income balance 247 249 302 312 371 294 367 n/a
Net transfer payments -20 -44 -71 -48 -94 -84 -65 n/a
Current-account balance -130 -140 -223 -201 -314 -59 -230 n/a
Reserves excl gold (end-period) 4,504 4,505 4,764 4,971 5,466 5,714 6,169 n/a
Sources: IMF, International Financial Statistics; Ministry of Finance and Economic Development; Stock Exchange of
Mauritius; Bank of Mauritius; Central Statistics Office.

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Mauritius 12

Monthly data
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Exchange rate MRs:US$ (av)
2016 36.1 35.7 35.6 35.1 35.2 35.4 35.5 35.2 35.3 35.6 35.8 35.9
2017 35.8 35.5 35.4 35.3 34.8 34.7 34.1 33.1 33.2 34.0 34.0 33.7
2018 33.0 32.6 33.0 33.7 34.5 34.4 34.3 34.3 34.3 n/a n/a n/a
Exchange rate MRs:US$ (end-period)
2016 36.0 35.8 35.4 35.0 35.4 35.5 35.4 35.3 35.4 35.9 36.0 36.0
2017 35.6 35.6 35.3 35.0 34.8 34.5 33.4 32.7 33.8 34.3 33.6 33.5
2018 32.3 32.8 33.2 34.2 34.4 34.6 34.1 34.2 34.2 n/a n/a n/a
Deposit rate (av; %)
2016 5.8 5.8 5.3 5.3 5.3 5.3 5.3 4.8 4.8 4.8 4.8 4.8
2017 3.6 3.6 2.9 3.3 3.0 2.9 3.5 4.4 2.4 2.1 3.0 2.1
2018 2.1 3.0 3.4 3.4 3.4 3.2 3.6 3.7 n/a n/a n/a n/a
Lending rate (av; %)
2016 8.5 8.5 8.5 8.5 8.5 8.5 8.5 8.5 8.5 8.5 8.5 8.5
2017 8.5 8.5 8.5 8.5 8.5 8.5 8.5 8.5 8.5 8.5 8.5 8.5
2018 8.5 8.5 8.5 8.5 8.5 8.5 8.5 8.5 n/a n/a n/a n/a
M1 (end-period; % change, year on year)
2016 9.9 9.8 9.2 7.3 5.4 8.8 10.2 7.0 7.6 11.8 12.7 11.6
2017 13.2 13.0 12.2 11.2 11.2 8.8 n/a n/a n/a n/a n/a n/a
2018 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
M2 (end-period; % change, year on year)
2016 10.5 9.4 7.7 9.0 9.2 8.7 9.7 8.4 8.9 9.2 8.0 9.1
2017 9.2 9.5 9.6 8.8 9.6 n/a n/a n/a n/a n/a n/a n/a
2018 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
Consumer prices (av; % change, year on year)
2016 0.4 -0.5 0.8 0.1 0.8 1.2 0.9 0.8 0.9 1.5 2.2 2.3
2017 1.7 1.2 1.3 3.0 5.9 6.4 5.4 4.7 3.5 3.4 3.6 4.2
2018 6.3 7.0 6.6 3.7 2.5 1.0 1.7 0.9 1.9 n/a n/a n/a
Foreign reserves excl gold (US$ m)
2016 3,986 4,030 4,107 4,124 4,180 4,261 4,280 4,289 4,357 4,298 4,388 4,504
2017 4,447 4,444 4,505 4,639 4,653 4,764 4,787 4,875 4,971 4,999 5,199 5,466
2018 5,570 5,671 5,714 5,744 5,926 6,169 6,019 6,125 n/a n/a n/a n/a
Sources: IMF, International Financial Statistics; Haver Analytics; Bank of Mauritius.

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Mauritius 13

Annual trends charts

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Mauritius 14

Monthly trends charts

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Mauritius 15

Comparative economic indicators

Basic data
Land area
2,040 sq km (1,865 sq km excl islands of Rodrigues, Agalega and St Brandon)

Population
1.26m (Statistics Mauritius, 2017)

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Mauritius 16

Main towns
Population in '000 (2013 World Gazetteer calculation)
Port Louis (capital): 160.1
Beau Bassin-Rose Hill: 112.9
Vacoas-Phoenix: 108.7
Curepipe: 85.7
Quatre Bornes: 82.4

Climate
Subtropical

Weather in Port Louis (altitude 55 metres)

Hottest month, January, 23­30°C; coldest months, July­August, 17­24°C; driest month, September,
36 mm average rainfall; wettest month, March, 221 mm average rainfall

Languages
French, English, Creole, Bhojpuri, Tamil, Hindi, Urdu

Religion
Hindu (52%), Muslim (17%), Christian (30%)

Measures
Metric system for most weights and measures; land area is often measured in arpents (1
arpent=0.4221 ha=1.043 acres)

Currency
Mauritius rupee (MRs)=100 cents; MRs33.9:US$1 (2018 average estimate)

Fiscal year
From 2010 to 2014 the fiscal year was the same as the calendar year but with the budget presented
in March 2015, the authorities switched back to a July-June fiscal year

Time
Four hours ahead of GMT

Public holidays
Fixed: January 1st-2nd (New Year); February 1st (Abolition of Slavery); March 12th
(Independence/Republic Day); May 1st (Labour Day); August 15th (Assumption); November 1st
(All Saints' Day); November 2nd (Arrival of Indentured Labourers); December 25th (Christmas)
Movable: Thaipoosam Cavadee (January-February); Maha Shivaratree (February-March);
Chinese Spring Festival (February-March); Ougadi (March-April); Eid al-Fitr (July); Ganesh
Chaturthi (September); Diwali (October-November)

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Mauritius 17

Political structure
Official name
Republic of Mauritius

Form of state
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Mauritius 18
Republic within the Commonwealth

Legal system
Based on English common law, the Napoleonic Code and the 1968 constitution

National legislature
National Assembly; 62 members elected by universal suffrage every five years, in 20 three-member
constituencies on the island of Mauritius and one two-member constituency on Rodrigues, plus
up to eight "best losers" (current parliament has seven best losers)

Elections
The most recent general election was held on December 10th 2014; the next general election is due
in 2019

Head of state
President, elected by a simple majority of the National Assembly; following Ameenah Gurib-
Fakim's resignation in March 2018, the vice-president, Paramasivum Pillay Vyapoory, has
temporarily taken up the post

National government
Council of Ministers appointed and headed by the prime minister; a new cabinet was appointed
following the December 2014 legislative election; a new prime minister was named in January 2017

Main political parties

The ruling Alliance Lepep holds 39 seats and comprises the Mouvement socialiste militant (MSM)
and the Muvman Liberater (ML); the main opposition parties are the Mouvement militant
mauricien (MMM; 12 seats) and the Labour Party (four seats); smaller parties include the
Organisation du peuple rodriguais (OPR; two seats), Mouvement rodriguais (MR) and Rezistans
ek Alternativ and the Mouvement Patriotique (MP)

Key ministers
Prime minister, home affairs, finance, economic development, national development unit & external
communications Pravind Jugnauth
Deputy prime minister, energy & public utilities: Ivan Leslie Collendavelloo
Vice-prime minister, housing & lands: Fazila Jeewa-Daureeawoo
Agro-industry & food security: Mahen Kumar Seeruttun
Attorney-general: Maneesh Gobin
Business, enterprise & co-operatives: Soomilduth Bholah
Civil service & administrative reforms: Marie Ciryl Eddy Boissézon
Education & human resources, tertiary education & scientific research: Leela Devi Dookun-
Luchoomun
Financial services, good governance, & institutional reforms: Dharmendar Sesungkur
Foreign affairs, regional integration & international trade: Seetanah Lutchmeenaraidoo
Health & quality of life: Mohammad Anwar Husnoo
Industry, commerce & consumer protection: Ashit Kumar Gungah
Labour, industrial relations & employment: Soodesh Satkam Callichurn
Mentor, defence & for Rodrigues: Sir Anerood Jugnauth
Ocean economy, marine resources, fisheries, shipping & outer islands: Premdut Koonjoo
Tourism: Anil Kumarsingh Gayan
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Mauritius 19

Governor of the Bank of Mauritius

Yandraduth Googoolye

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Mauritius 20

Recent analysis
Generated on December 31st 2018

The following articles have been written in response to events occurring since our most recent forecast was
released, and indicate how we expect these events to affect our next forecast.

Politics
Forecast updates
US launches hawkish new Africa engagement strategy
December 17, 2018: International relations

Event
On December 13th John Bolton, the US national security adviser, unveiled a new strategy that
emphatically pursues US economic, security and political interests in Africa and challenges
Russian and Chinese measures to increase their influence on the continent.

Analysis
Africa could be experiencing a return to the sort of competition among the great powers that
characterised the second half of the 20th century, after Mr Bolton publicly outlined the US's new
emphasis on actively competing with China and Russia to build influence there. Mr Bolton
accused them of seeking to undermine US economic interests in Africa and warned that their
efforts to develop economic, political and security partnerships with African states had already
led to corruption, violence and unsustainable levels of debt on the continent.
The administration's new strategy for Africa, which Mr Bolton outlined in a speech to the Heritage
Foundation, a conservative US think-tank, comes after the US president, Donald Trump, had
given several signs that his administration envisages a new era of global competition with Russia
and China. In Africa this has included facilitating private-sector capital investment in developing
African countries under the US's Better Utilisation of Investment Leading to Development
(BUILD) Act, which will help developing countries to prosper while advancing US foreign-policy
interests, and reducing the deployment of US troops on the continent in favour of greater
surveillance by drones and air strikes against regional terrorist groups.
Mr Bolton also emphasised that in future the US would not give aid to countries that vote against
US interests in international forums or take other actions contrary to US foreign policy. He also
criticised US financial support for peacekeeping operations in countries such as South Sudan,
where a civil war is currently being fought, and said that the US plans to reconsider the assistance
it provides to "unproductive" overseas peacekeeping operations. Africa remains a low priority for
US policymakers, who see it mainly through the lens of competition with Russia and China.
The US administration is clearly seeking narrower approach to dealing with African countries on
issues such as counter-terrorism and trade, compared with the previous that emphasised good
governance, human rights and sustainable development.

Impact on the forecast

Over the forecast period we expect the global system to be characterised by intense competition
between the major powers, in particular China and the US. The new, more pragmatic US approach
to African states reflects the shift away from the neoliberal, post-Cold War order.

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Mauritius 21

Economy
Forecast updates
Public debt rises
November 20, 2018: Fiscal policy outlook

Event
According to data released by the Ministry of Finance and Economic Development, public debt
increased from MRs292.5bn (US$8.6bn) to MRs307.3bn between September 2017 and September
2018.

Analysis
The main driver of the rise in public debt is government borrowing to bail out investors in a
MRs25bn Ponzi scheme (whereby money was paid out to investors from incoming funds rather
than actual returns on investments, leading to its eventual collapse), at the Bramer Bank
Corporation (BBC), which is a subsidiary of Kenyan-based British American Investment
Company. The government took over the management of the property owned by the BBC and
created a new bank to service BBC's existing clients, after the latter's banking licence was revoked
in 2015. In addition, an increase in government borrowing to repay bonds that have reached
maturity, such as the benchmark five-year bond of MRs3.9bn, which matured in October 2018, is
likely to have driven up public debt.
Mauritius relies heavily on short­term debt—a situation aggravated by sluggish export growth
and rising international oil prices. Indeed, the short-term debt stock of the State Trading
Corporation, which imports the bulk of the country's oil, increased by about MRs312m, owing to
higher imported prices of petroleum products in the third quarter of 2018. Debt accumulated by
parastatal utility companies adds to the total stock of public debt. Although public external debt
fell slightly in September 2018, compared with the corresponding period of 2017, it remains high,
with significant borrowing from India and China, which could weaken Mauritius's negotiating
power on trade issues.
The upward trend in public debt can be explained by the populist agenda followed by the
government since the last general election in 2014, under which social spending has been
generous, although limited measures to enhance revenue have been implemented. We expect the
government to maintain a relatively expansionary fiscal stance and a long-held populist position
over the forecast period (2019-23), particularly before the general election, which is due in 2019.
As the government holds back on implementing unpopular tax reforms, and current expenditure
and infrastructure spending programmes remain high, the fiscal account will remain in deficit, and
the shortfalls will be financed by further borrowing.

Impact on the forecast

We continue to expect the debt stock to decline over the forecast period, from an estimated 64.7%
of GDP in 2018 to 54.6% of GDP in 2023 as the government contains short-term borrowing and
takes steps to boost revenue.

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Mauritius 22

Mauritius and India to sign free-trade agreement in 2019

December 10, 2018: Economic growth

Event
The foreign affairs, regional integration and international trade minister for Mauritius, Seetanah
Lutchmeenaraidoo, has announced that the country's negotiations on a Comprehensive Economic
Partnership Agreement (CECPA) with India have reached the final stage, and the agreement is
expected to be signed in January 2019.

Analysis
This trade agreement with India was initiated in 2005, but discussions have stalled several times
owing to the contentious double-tax-avoidance agreement (DTAA) between the two countries.
Under the DTAA, Mauritius-registered businesses do not have to pay any capital gains tax (CGT)
on their sale of assets in India, as the island nation does not have a CGT. However, this raised
suspicions that Indians were routing money through Mauritius to avoid paying tax. The DTAA
treaty was then revised in 2016 and paved the way to restart the negotiation on CECPA, which
includes trade in goods and services, investment and economic co-operation.
The CECPA agreement will provide Mauritius with significant business opportunities, specifically
the manufacturing sector, which has been negatively affected by modest economic performance
among Mauritius's main trading partners (the US, the UK and France). In particular, the
preferential trade agreement would allow Mauritius to export textile and marine products to India
duty free or at a very low import tax and help bolster Mauritius's stagnant textile and expanding
marine industries through access to India's growing population.
India, however, does not stand to gain much from this agreement in terms of trade with Mauritius,
as India's exports to Mauritius in the past year were worth US$1.07bn while its imports amounted
to only US$20.6m. However, India will benefit from Mauritius' strategic geographic position, which
would allow it to expand into the African market by increasing re-exports from Mauritius, mainly
as Mauritius is a part of the Tripartite Free-Trade Area (TFTA) agreement with other African
countries. The TFTA includes 26 member states, which together represent a market of 625m
people and a cumulative GDP exceeding US$1.5trn. Moreover, this is in line with India's efforts to
expand its economic and diplomatic footprint in Africa; the country has pressed ahead with
efforts to bolster trade links with African countries, partly owing to their strategic importance, and
partly owing to resource availability on the continent.

Impact on the forecast

Although the CECPA has the potential to boost the Mauritian economy, we do not expect this
agreement to yield significant economic benefits in the short term. Hence our economic growth
forecasts remain unchanged.

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Mauritius 23

Branded synthetic diamonds benefit natural diamond sellers

December 12, 2018: International assumptions

Event
Fears that low-priced synthetic diamonds will undercut the value of natural stones in global
markets are receding, after the first release of branded artificial stones by the De Beers Group
(under the name Lightbox Jewelry) has seen the prices of laboratory-grown gems in the US fall by
as much as 30% since September 2018.

Analysis
This is particularly good news for major diamond producing and exporting African states that are
part of the Kimberley Process (KP, a certification scheme aimed at preventing "conflict diamonds"
from entering the mainstream rough diamond market), such as Botswana, whose economy
continues to remain heavily mineral-dependent, and where economic growth still fluctuates in line
with external demand and prices for diamonds. Sales of natural stones in Botswana were growing
strongly at the end of the third quarter of 2018, after a sluggish first two quarters. Exports of
Botswana-produced diamonds reached P8.8bn (US$833m) in the first quarter, P7.5bn in the second
and P11.9bn in the third, which ended on September 30th. Botswana and De Beers are set to start
negotiations on a fresh sales and marketing agreement to succeed the current one that lapses in
2020. However, De Beers says that it has held extensive consultations with Botswana on the issue
of lab-grown diamonds and the country supports the group's move into the synthetic market.
Synthetic producers have long marketed their artificial stones as akin to natural ones in the US,
while pricing them at a discount to natural diamonds. Now De Beers, which produces the most
advanced artificial stones on the market, is creating a bigger price gap between mined and lab-
grown diamonds by selling its Lightbox Jewelry stones at below-market rates for synthetics, while
continuing to sell its natural diamonds at a premium. The group also shows no signs of winding
down its involvement in natural diamond production now that it has begun sales of artificial
stones. Indeed, De Beers is known to be investing up to US$15bn in expansion projects for its
natural diamond businesses in the KP member states Namibia, Botswana and South Africa over
the next few years.

Impact on the forecast

We believe that De Beers' main focus remains on the natural diamond business and that there is
unlikely to be a sharp reduction in its production in the short to medium term. Our economic
forecast for Botswana is unchanged.

Positive outlook for e-commerce

December 20, 2018: Policy trends

Event
Kenya ranks fifth in Sub-Saharan Africa for e-commerce readiness, according to the latest
business-to-consumer e-commerce index published by the United Nations Conference on Trade
and Development (UNCTAD) on December 10th.

Analysis
The rankings, based on 2017 data and released at UNCTAD's Africa e-commerce week, held in the
Kenyan capital, Nairobi, place Mauritius, Nigeria, South Africa and Ghana in the first four slots,
with Kenya in fifth and Uganda in sixth. Of the four components of the index, Kenya ranks
strongly (second behind Mauritius) for the share of individuals with an e-commerce account
(82%) and has an average rating for the share of individuals using the internet, but lags behind on
secure internet servers, which increases the risk of cybercrime, and the reliability of postal
services. Of the leading regional countries, Kenya, Ghana and Nigeria showed the biggest
improvement between 2016 and 2017, helped in Nigeria's case by an overhaul of the postal service.
Sub-Saharan Africa continues to trail in the global league, with Mauritius in 55th place and Kenya
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Mauritius 24
in 89th (out of 151 countries), but the region made faster gains in all four index components than
the global average in 2011-17.

In terms of actual e-commerce, Kenya ranks in third place (behind Mauritius and Namibia) in the
proportion of individuals shopping online (9.3%), one place ahead of South Africa (7.9%). Kenya
also has the region's third largest number of online shoppers (2.61m), behind South Africa (2.93m)
and Nigeria (about 4m). The three together account for almost half of the region's internet
shoppers. Regional growth in shopper numbers of 18% a year on average since 2014—with Kenya
being one of the fastest risers—exceeds the global average of 12%. Nonetheless, the value of
regional e-commerce remains very small, at about US$5.7bn in 2017, equivalent to less than 0.5%
of GDP, compared to a global average exceeding 4%. Faster growth in e-commerce will require
deeper internet penetration and greater trust by users in the safety of e-shopping. Kenya also
requires improvements in the postal service—perhaps, like Nigeria, via a new addressing system
—although the growth of private­sector delivery firms is helping to fill the gap. Illustrating this,
Carrefour, a French retailer, will use Jumia, Kenya's leading e-commerce platform, to deliver online
orders from its six Nairobi stores, starting in January.

Impact on the forecast

Information and communications technology will continue to drive wider economic growth in
Kenya, and e-commerce, although still a niche market, will become increasingly important. Our
forecasts are unchanged.

Analysis
Impact of US BUILD Act on Sub-Saharan Africa
November 22, 2018
On October 5th 2018 the US Senate passed the Better Utilization of Investments Leading to
Development (BUILD) bill, which aims to facilitate private-sector capital investment in
developing countries. Once signed by the president, Donald Trump, the act will create a
development agency, the International Development Finance Corporation (USIDFC), which will
have an investment cap of US$60bn. The USIDFC will be able to provide loans, equity, insurance,
grants and technical assistance to private-sector entities investing in developing countries
around the world. Additional financing will be welcome in Africa, where inadequate
infrastructure remains a major obstacles to faster economic growth. The African Development
Bank estimates that the continent's funding gap for infrastructure is as much as US$87m to
US$112m annually.
The USIDFC will be an integrated one-stop shop for private-sector investment, by combining
various existing development finance entities, such as the Overseas Private Investment
Corporation (OPIC) and the private capital functions of USAID. The US government has in effect

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Mauritius 25
doubled the size of its investment from OPIC's current US$29bn investment cap to US$60bn. The
USIDFC will also have new development finance capabilities, with the ability to make equity
investments and to take risks in low- and middle-income economies. It can now attract potential
investors by lowering investment risks through financial instruments such as first loss guarantees
and small grants. It will also be able to provide loans and guarantees in local currency to protect
investors from currency exchange risk. The USIDFC will consequently be able to crowd-in private
investment and help to support low- and middle-income economies in Sub-Saharan Africa in their
gradual transition towards market economies.

US opens its chequebook

The BUILD Act is part of the strategy of Mr Trump's administration to counter China's influence
in Africa and Asia, including China's Belt and Road Initiative. By allowing the USIDFC to provide
equity financing instead of debt and thereby ensuring that the agency shares risk with the private
companies it invests in, the act should increase the accountability of the USIDFC. Mr Trump's
administration hopes that such a financing model will offer an alternative to Chinese investment,
which is primarily funded by debt, historically a problem for Sub-Saharan African countries, which
have sometimes optimistically over-borrowed to fund investment. The Economist Intelligence Unit
doubts that Sub-Saharan African countries will find that the USIDFC will match Chinese levels of
investment, but simply its existence as an alternative to Chinese funding will strengthen African
states in their negotiations with China.

Infrastructure investment needs: a SADC perspective

The Southern Africa Development Community (SADC) argues that, as with most of Sub-Saharan
Africa, regional development in infrastructure is crucial to sustaining its members' economic
development and improving trade and investment opportunities. According to SADC's Regional
Infrastructure Development Master Plan (RIDMP), energy, transport, telecommunications, water,
and tourism are all crucial areas for investment in the region. The plan sets out how the countries
in Southern Africa can transition from commodity-driven growth to growth fuelled by value
addition and industrialisation. In this vision, the private sector plays a crucial role in filling the
plan's financing gap, and it is this need for greater regional investment that the USIDFC could in
theory meet. The infrastructure projects covered in the RIDMP, approved by SADC finance
ministers in 2012, call for capital of US$500bn. Out of this, an estimated US$100bn is to come from
the private sector; having the USIDFC as a partner could make it a lot easier to persuade private
companies to take the risk of investing in the SADC region.
Southern Africa lags behind other areas in Africa, particularly in infrastructure. Yet there is great
potential for investment in crossborder infrastructure, where rudimentary plans have already taken
shape in electricity infrastructure. Currently, nine SADC countries have connected their power
grids, creating a competitive energy market. However, in the Southern Africa Power Pool, only
24% of residents have access to electricity, compared with 36% in the Eastern Africa Power Pool
and 44% in the Western Africa Power Pool (although access to electricity remains an issue across
all of Sub-Saharan Africa's regions). Furthermore, in southern Africa, only 5% of rural areas have
access to electricity. The US economic regional portfolio in the SADC region currently spans
several different initiatives such as Power and Trade Africa (PATA), the African Growth and
Opportunity Act (AGOA) and clean energy programmes. This emerging southern Africa energy
infrastructure has already produced benefits, with increased access to markets, and it provides
some scope for initial USIDFC investment in the region's infrastructure as outlined in SADC's
strategy for regional growth.

Downside risks in SADC countries

Southern African governments recognise the importance of private-sector investment in their
infrastructure. However, such investment is impeded by a number of obstacles. These broadly
include significant tariff barriers, poor project preparation and unstable regulatory frameworks.
The USIDFC and other, private-sector entities will, however, sustain investment only if the risks
associated with these problems are addressed by the region's governments. The twin challenges
that SADC countries face are securing investments in the first place and then providing the
conditions to ensure that these investments are managed efficiently.
In the region, inefficiencies in infrastructure markets emanate primarily from state-owned
Country Report 4th Quarter 2018 www.eiu.com © Economist Intelligence Unit Limited 2018
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enterprises (SOEs). These SOEs are often poorly managed, with a substantial portion of
government budgets directed towards subsidies for them. As a result, expenditures such as the
maintenance costs of infrastructure projects are often neglected. Governments also tend to
intervene in utility markets through discretionary pricing policies. For example, Malawi, a member
of SADC, was not selected by the US-funded Millennium Challenge Corporation (MCC) for a
second compact programme, as its government delayed increasing electricity tariffs for many
years, tariffs that were necessary for the financial health of the state utility under the MCC's initial
US$350m compact programme. This past track record affects potential investments, not only in
Malawi, but also in neighbouring countries through the SADC power pool. Without
improvements, such markets will continue to be high-risk investments for private-sector investors,
and will attract little interest or overseas capital.

Africa overall
Despite some encouraging local progress in the telecommunications sector over the past two
decades, Africa as a whole still lags behind other parts of the world in terms of new infrastructure.
In some countries, such as Rwanda and Ethiopia, which have strong governments that inspired
confidence among global investors, private-sector investment in infrastructure has increased over
the past few years. But across Africa, further reforms will need to be undertaken to improve the
investment climate for infrastructure development. All African governments ought to seek to
promote investment by continuing to reform their SOEs so that they can be privatised, or to
collaborate with potential investors to secure long-term investment. In the meantime, development
finance institutions like the USIDFC should step in to provide funding and direction for regional
development.
However, US aid will be spread across the whole continent (and elsewhere) during the course of
the USIDFC's 20-year mandate (which will end in 2038), so it is important to realise that the
USIDFC will not by itself be sufficient to enable Sub-Saharan African governments to close the
infrastructure gap that has opened up between themselves and other parts of the world. The
BUILD Act is also a direct response to China's Belt and Road Initiative, so its funds may be
targeted at those countries that are most geopolitically important to the US and China (such as
Djibouti and Ethiopia), rather than where the money is needed most. However, China is also
present in many African countries, from Botswana to Eritrea, and this will encourage the US to
expand its aid development presence in those countries too.
Concerns over Chinese influence also spurred the European Commission to launch its own
version of the BUILD Act on September 19th, the so-called Connectivity Strategy. This will aim to
give developing countries a "credible and sustainable alternative offer for connectivity financing"
to candidate countries that emphasize sustainable development and labour rights. The growth of
"aid competition" between the great powers will not resolve all of Sub-Saharan Africa's
development issues over the next two decades, but we expect that it will make it easier for them to
grow their economies until they become attractive destinations for foreign direct investment in
their own right.

Country Report 4th Quarter 2018 www.eiu.com © Economist Intelligence Unit Limited 2018